Advertisement

5 money moves to make before Fed rate hike

What the upcoming interest rate increase means for your money
Published: Feb. 1, 2022 at 12:49 PM CST
Email This Link
Share on Pinterest
Share on LinkedIn

BIRMINGHAM, Ala. (WBRC) - The Federal Reserve is expected to raise the federal fund rate in March following a long run of historically low rates. It’s an effort to slash the highest inflation rates we’ve seen in forty years. Experts say this is a nod that our economy is strong, the unemployment rate is low and it no longer needs the same level of support. But there’s little chance consumers won’t feel the impact. That’s why we’re on your side with the top money moves to make ahead of the increase.

1. PAY OFF DEBT

It’s been years since the central bank raised interest rates. We could be in for three or more rate hikes in 2022. At the very minimum, this means you’ll pay more for the money you borrow. Clay Marshall, Senior Advisor with the Welch Group encourages aggressive debt reduction ahead of the hikes this year.

“For all the Fox 6 viewers, you should make it a goal and in 2022 to pay down all credit card debt and try to pay down any sort of variable rate loans you have as quickly as possible,” Marshall explained. “Those are the things that can escalate very quickly and can cause someone’s personal financial position to deteriorate.”

It’s key to assess what you owe, specifically variable debt.

“The thing that people need to understand is that interest rates are going up, particularly as it pertains to the to any sort of variable rate debt that they may have,” he added. “I’m talking about credit card debt, which rolls over month over month, variable rate mortgages and equity lines of credit.”

Credit card interest rates are based on the prime rate, which follows the Fed. Consumers can expect to see credit card interest rates and/or minimum payments inch up in one to two billing cycles following the rate increase.

2. DON’T SHY AWAY FROM STOCKS

Marshall advises investors to focus on dividend stocks with a strong balance sheet. He advises inflation will be with us likely for the rest of our lives, investing in the stock market is the way to stay ahead of inflation in the long run.

“So what do I mean by that?” he asked. “I mean look at companies that provide goods and services that people need, not necessarily want over the course of time. The goods and services that people need, the companies that provide those can actually raise the prices in the in the face of all this inflation that we’re experiencing and not see a dramatic fall off in the volume of the products that they’re selling.”

3. WHEN MAKING INVESTMENT ADJUSTMENTS, PLAY SMALL

It’s key to assess and rebalance your portfolio to grow with the changing market. When making those adjustments, think of it as minor tweaks and avoid all cash or all stock investments.

“I think you always have to consider the long term and not try to make big bets on where the market’s going to go over a three to six month period of time,” Marshall advised. “Managing your money is a constant search for value and money always flows where the deals are. And so if the deals aren’t in technology right now due to rising interest rates, those are the things that investors need to be aware of so that they can allocate their capital properly.”

4. THINK TWICE BEFORE BUYING A HOUSE

While fixed-rate mortgages still offer low interest, home values are elevated. Marshall believes consumers should consider multiple factors before making this investment.

“Each family has to make their own decision,” he stated. “But I think if you can afford the payment, you have a longer term time horizon and if you’re going to stay in a house to for five, ten, twelve years, I think you’re okay to start dipping into the housing market.”

5. DON’T ASSUME MONEY WILL GROW IN THE BANK

The interest rate hike won’t immediately translate into a windfall for depositors who have been earning zero on their money during this environment. Instead, it will give banks the opportunity to charge borrowers more and depositors nearly the same rate. Marshall says there are other safe yet valuable places to grow your money right.

“[By keeping money in savings] you’re still going to have a negative real rate of return as it compares to inflation,” Marshall acknowledged. “Every day in America, there’s a lot of good people that are waking up trying to solve these problems. I think when you invest in the stock market, you’re making a bet on the future of America. We’re really confident about the long term.”

CLICK HERE TO GET THE WBRC FOX6 NEWS APP

Subscribe to our WBRC newsletter and receive the latest local news and weather straight to your email.

Copyright 2022 WBRC. All rights reserved.